Channel Partner Profitability Study Partner Profitability Study A study comparing partner...

Channel Partner

Profitability Study A study comparing partner profitability and experiences

between Amazon, Google, Microsoft and Salesforce

June 2016

AMI-Partners

New York, NY

www.ami-partners.com

C h a n n e l P a r t n e r P r o f i t a b i l i t y S t u d y

2 | P a g e A M I P a r t n e r s

Table of Contents

Executive Summary ......................................................................................................................................... 3

Introduction .............................................................................................................................................................. 3

Key Study Objectives ................................................................................................................................................. 3

About AMI-Partners .................................................................................................................................................. 3

Summary of Findings ................................................................................................................................................ 4

Market Size and Partner Opportunity ............................................................................................................... 5

Partner Satisfaction with Profitability ............................................................................................................... 6

Overall Satisfaction with Profitability ....................................................................................................................... 6

Factors Impacting Partner Profitability .................................................................................................................... 6

Microsoft partners cited the following top profitability drivers: .............................................................................. 7

Portfolios and Products .................................................................................................................................. 10

Overall Satisfaction with Vendor Portfolio and Technologies ................................................................................ 10

Office 365 and Dynamics CRM Profitability ............................................................................................................ 11

Partner Relationships ..................................................................................................................................... 12

Overall Satisfaction with Vendor Relationships ...................................................................................................... 12

Delivering a Better Customer Experience ............................................................................................................... 12

Partner Strategy ..................................................................................................................................................... 13

Conclusion ..................................................................................................................................................... 13

About This Study ........................................................................................................................................... 16



Executive Summary

Introduction

The success of large cloud service providers depends heavily on their partners’ ability to develop the

channel and drive sales. The market is highly competitive, and cloud service providers have a vested

interest in ensuring partner satisfaction and profitability. This ensures partners will continue to invest in

the relationship. Four of the biggest tech companies in the worldwide cloud services market include

Amazon Web Services, Google, Microsoft and Salesforce. These suppliers regularly compete for share of

the partner ecosystem. To better understand how partners value relationships with different cloud

service providers and what drives profitability, AMI conducted a blind survey as well as a series of partner

interviews commissioned by Microsoft, focusing on partner perceptions and profitability across these four

vendors.

Key Study Objectives

The key objective of this study was to uncover insights into what drives partner profitability and

understand the value partners place on services, solutions, attach opportunities, and attributes regarding

partner management that distinguish one vendor from another.

About AMI-Partners

Since 1996 AMI-Partners has been sizing, tracking and analyzing the Global Small, Medium and Large

Business Enterprises and IT Channel Partners across all continents spanning over 50 countries. AMI is the

business research industry’s leading research, advisory and Go-to-Market consulting firm.



Summary of Findings

This study revealed the following key findings:

86% of all Microsoft partners are satisfied with the profitability they achieve when partnering with Microsoft, compared to Google (83%), Amazon (79%) or Salesforce (83%). This satisfaction rate increases to 90% among partners who have achieved Gold level Microsoft certifications.

On average, all Microsoft partners derive margins of roughly 43%. These margins are 19% higher than the next closest competitor (average margin for Google partners is 36%). Microsoft Gold partners are even more successful, typically deriving average margins of 48%.

Office 365 is a major driver of Microsoft partner opportunity and profitability which sets Microsoft apart from competitors. 96% of partners are satisfied with Office 365 profitability.

Strong partner management, technical, and business support drive high partner satisfaction with Microsoft. 94% of all Microsoft partners are satisfied with the overall relationship they have with Microsoft. Microsoft Gold partners are even more satisfied with their relationship at 97%.

The breadth of Microsoft offerings allows partners to attach more services to Microsoft deals than they achieve with other vendors. 83% of all Microsoft partners are satisfied with Microsoft’s portfolio and technologies. 88% of Microsoft Gold partners are satisfied with Microsoft’s portfolio.

Microsoft is the vendor partners prefer to work with by a wide margin. 82% of all partners surveyed would choose Microsoft if they could choose only one vendor to partner with.



Market Size and Partner Opportunity

AMI projects worldwide spending on cloud services and solutions by small, medium and large enterprises

will increase from $317 billion to $535 billion between 2016 and 2020. The cloud market will be growing

at a robust CAGR of 14% through 2020, compared to overall IT/Telecom spending which will rise at a rate

of only 6% over the next four years. Small and medium businesses (companies with 1-999 employees)

will account for two-thirds of cloud spending while large enterprises (companies with 1,000+ employees)

will comprise the remainder.

This growth in the cloud market represents a significant opportunity for channel partners. Partners who

are transforming their business models to become cloud-ready and aligning themselves with leading cloud

vendors that provide them with the tools, platforms, products, services, solutions, training, support and

other Go-to-Market (GTM) help will capture an increasing share of this opportunity.



Partner Satisfaction with Profitability

Overall Satisfaction with Profitability

When partners compare profitability across vendors they are the most satisfied with Microsoft. In

particular, 90% of Microsoft Gold partners reported satisfaction with their profitability when partnering

with Microsoft. The next few sections will explore the key factors driving this satisfaction with profitability.

Factors Impacting Partner Profitability

This high level of satisfaction among all Microsoft partners is driven by profit margins averaging 43% when

selling Microsoft cloud solutions – 19% higher than the closest competitor. Microsoft Gold partners

derive the strongest margins among all competitive partners at roughly 48%. Microsoft partners are able

to derive stronger profit margins because Microsoft’s breadth of products enables them to attach more

value added services such as migration, implementation and managed services.

While rates and the margins are a key profitability metric, partners should also inspect the revenue

potential generated with every license sold or consumption dollars. While certain vendors may have

higher rates, their products may be less expensive. Upon closer examination, the revenue generated from

selling high value solutions (such as Office 365) will exceed those from less costly solutions.



“It’s a fantastic business. We have a business based solely on reselling and selling managed services on a recurring basis. Our revenues will double this year. We will do it next fiscal year with an invoicing base that is so high. I’ve never seen anything like it. The ROI of using Microsoft cloud is amazing. It’s growing because all the things we do for customers in first year, we can do it again in second year with new services that Microsoft is launching. The future for partners is so well aligned with what Microsoft is doing in the market.”

Finn Krusholm, CEO, Cloud People

Microsoft partners cited the following top profitability drivers:

The key factor driving profitability for Microsoft partners is the opportunity created through the

Microsoft portfolio of solutions.

The depth and breadth of Microsoft’s technology portfolio enables partners to more easily bundle

additional offerings and cross-sell/up-sell other high profit services compared to other vendors. Over half

of Microsoft partners report attaching value added services to customer deals. Partners working with

Amazon, Google, and Salesforce indicated they did not have as much opportunity to attach value added

services.



Despite high satisfaction with profitability, several partners mentioned Microsoft was more costly to do

business with than other vendors. Training was cited among the key cost drivers, but partners

acknowledged that this was, in part, due to the scope of offerings. Microsoft provides discounts and

incentives to help partners offset the costs.

“We started the partnership almost two years ago because we realized that we have more

opportunities to sell our services on top of the Microsoft cloud.”

Mauricio Fernandes, President, Dedalus

“We’re much better now because of the breadth of products than with Google. We’ve got the Microsoft stack, EMS is part of the stack and it all links together. The Microsoft platforms link together. Without [the Microsoft stack] I'm not sure what we’d do. We package everything around it and what Microsoft does. We build packages surrounding those solutions. It would be crazy to offer any other solution in the market.”

Chris Dunning, CEO, Techquarters

In addition to the ability to attach services, vendor marketing support, which includes help with lead

generation and incentive programs, greatly impacts partner profitability. Among all Microsoft partners,

77% are satisfied with lead generation, the highest satisfaction rate among all vendors. While most

partners are pleased with the leads provided by Microsoft, some feel the prospects could be better

screened to fit their specific customer targets.

Additionally, among all Microsoft partners, 71% are satisfied with incentive programs offered by

Microsoft. Partners find Microsoft’s marketing support an effective way to stretch marketing budgets.

Microsoft’s willingness to provide marketing dollars reduces partners’ overall expenses and enables them

to expand their reach. Partners who are at a higher level within the Microsoft Partner Network (MPN)

tend to receive a greater share of marketing investments and incentives.

These marketing investments have enabled partners to be more profitable, which increases their

confidence in the relationship over the long term.



“Microsoft is always thinking about how to make profits for themselves and partners. It’s in their DNA to make money.”


“Due to Google’s recent partner program changes, many strong partners have seen a decrease in margin on their Google business. We had the biggest customer base for Google in northern Europe and they downgraded us because they didn’t look at repeatable business, only new sales. With Microsoft they know keeping customers forever is important, Google didn’t realize the power of recurring revenues.”




Portfolios and Products

Overall Satisfaction with Vendor Portfolio and Technologies

Cloud vendors’ product portfolios play a central role in driving partner profitability. Microsoft stands out

against the competition and it is Microsoft Gold partners who see the strongest advantage. 88% of

Microsoft Gold partners are satisfied with Microsoft’s product suite which is significantly higher than

competitors. There are two main factors driving partner satisfaction. Firstly, the breadth of offerings from

Microsoft, e.g., Office 365, Dynamics CRM, Enterprise Mobility Suite, SharePoint Online, is unparalleled

compared to the offerings from other vendors. Secondly, customers are already very familiar with

Microsoft’s on-premise solutions, which is driving demand for their cloud solutions.

While the depth of the Microsoft portfolio is appealing, some partners reported complexities around

pricing and managing the number of SKUs. Partners must familiarize themselves with the Microsoft

pricing models and the variety of SKUs available in order to minimize these challenges.

“[The Microsoft cloud portfolio] had a very positive impact on our profitability because of the demand we have seen from the customers.”

Blair Collins, President/Owner, Interlock IT

“[The Microsoft stack] integrates very nicely together, Office 365, CRM, SharePoint, Power BI, … it’s a natural progression for different needs. It is creating an opportunity to up-sale and cross-sale to existing clients.”

Jonathan Kazemaini, CRM Delivery Lead, Spruce Technology



Office 365 and Dynamics CRM Profitability

The depth of the Microsoft cloud portfolio is a key driver of partner profitability allowing partners to serve

customer needs across mobility, productivity, and infrastructure. Specifically, partners have identified two

products that have played key roles in driving partner profitability – Office 365 and Dynamics CRM Online.

Both of these products rate higher among partners than alternatives offered by Google or Salesforce in

terms of partner profitability. Partners cited the following key factors driving their satisfaction with the

Microsoft cloud portfolio:

Partners report a vast number of their customers have legacy infrastructure built in the Microsoft/Windows environment. Partners see stronger customer demand for Microsoft cloud solutions because of the tremendous opportunity afforded by Microsoft’s existing on-premises installed base.

Partners feel Office 365 and Dynamics CRM Online are often an easier sell compared to other vendors’ products because customers have a built-in comfort level with the Microsoft brand. Familiarity with existing applications necessitates less product training and makes the migration process to the cloud smoother.

The “Office 365 first” strategy gives partners a foot in the door with customers where they can begin to bundle other products and services such as Dynamics CRM Online. Partners value the ease of integration within the Microsoft portfolio and the ability to sell deeply into their existing customer base. Because other vendors do not have the depth of products, partners are unable to extract the full value from selling to current customers.

As Office 365 adoption accelerates, it creates many other partner opportunities throughout the Microsoft stack and the partners’ value-add services.

“Most customers used to come to us to buy Google and now it is the opposite and most…come to us [for] Office 365.”


“You start with the Office 365 implementation to get your email and maybe files in the cloud. Then we establish trust with the client. They are willing to work on removing servers from their offices and bring them into Azure… That’s what generates a lot more follow on work. Additional professional services revenue is earned by taking more of their infrastructure to the cloud on Azure and integrating it with their Office 365.”

Blair Collins, President/Owner, Interlock IT



Partner Relationships

Overall Satisfaction with Vendor Relationships

Although partners place a high priority on profitability when choosing which vendors to work with, the

management of the relationship is also extremely important to both parties’ success. While partner

satisfaction is relatively high across vendors, Microsoft partners were the most pleased with the

relationship.

“With Microsoft [we are in contact] every hour. We have a lot of people helping us. We have people calling us all the time. We have a very nice relationship. We see no comparison to any other company, not only attention but also alignment."


Delivering a Better Customer Experience

There are a myriad of factors driving high satisfaction with partners’ relationship with Microsoft. Most

significantly, partners believe Microsoft enables a better customer experience compared to other

vendors.

The ability to deliver a better customer experience is directly related to the level of support the partners

receive from the cloud provider. Although technical support is very important, “support” in this context

is much broader and includes supporting the partners’ overall businesses. Partners compare and contrast

vendors across a wide range of support needs such as business model transformation, marketing

programs and sales support, certification programs and education, and many other critical functions.



Partners feel Microsoft provides better support than Amazon, Google, and Salesforce and that this level

of support is at least partly responsible for the success of their business.

“Due to the support we receive, our Microsoft business has driven faster growth over the last year compared to other vendors. There has been more demand for Microsoft offerings which is an effect of all of the support that Microsoft is providing to partners. I think being a Microsoft partner and offering their solutions makes us a more valuable asset to our customers.”

Van Murray, CEO, NeoCloud

“Microsoft provides us with partner readiness including technical, marketing, and sales training. They have regional training and provide other materials online through TechNet, blogs, videos, online training, and testing. This investment has helped our team of 320 employees earn more than 800+ certifications. Importantly, Microsoft also engages our experts for feedback on critical topics like improving technical support.”

Chris Hertz, President, New Signature

While most partners feel Microsoft does a great job managing the relationship, assigning accessible, high-

touch account managers and willingness to pass on leads, some feel that the Microsoft partner portal can

be difficult to navigate. Some partners mentioned it can be overwhelming to search for marketing and

training materials on the Microsoft Partner Network portal due to the volume of resources available.

Partner Strategy

Another important area where Microsoft differentiates itself from competitors is its overall approach to

co-selling with partners. Partners indicated Amazon, Google, and Salesforce, all place an emphasis on

selling directly to customers which creates channel conflict. Microsoft partners are more likely to feel

supported and empowered by Microsoft which creates a strategic advantage.

“The biggest difference [between Microsoft and Salesforce] really has turned out to be the partner relationship. Salesforce is almost antagonistic towards their partners and often views them as a means to an end… Salesforce is a direct selling company... They don’t need partners for anything really. If you’re a Salesforce partner you are on your own.”

Steve Mordue, CEO, Forceworks

“The Google product is the same as [it was] five years ago... With Microsoft new services are launched every week that are really helpful and improve customer productivity.”


Conclusion



The AMI study illuminates that partners evaluate a variety of criteria when deciding which cloud vendors

they should partner with. Partners consider various aspects of the vendor relationship, product offerings,

support, and margins. Key factors influencing partner decisions include:

Depth and breadth of the solution portfolio – Partners are increasingly targeting new customers

with cloud offerings often leading with productivity solutions and then cross-selling and bundling

additional cloud products.

Ability to add attach value-added services – Partners are focusing on attaching their own value

added services to cloud deals with existing customers to drive greater profitability.

Profitability – Partners can expect to receive increased profit margins, depending on the ability to

attach incremental project services, managed services and intellectual property.

Marketing support, lead generation and incentives – Partners prefer to work with vendors that

provide marketing dollars to offset their costs. Direct sales leads are key for partners looking to

expand their customer base.

Customer experience and ease of migration – Partners seek to shift existing customers to the

cloud to create recurring revenue streams. This is easier to do when customers are already familiar

with a product. Less training is required and customers feel more comfortable with a known

brand.

Partner strategy – Partners are establishing close ties with vendor account managers to take

advantage of co-selling opportunities and avoid conflict with the vendor’s partner engagement

strategy.

The AMI study illustrates how Microsoft is uniquely well positioned to help partners along their cloud

transformation journey. Microsoft’s breadth of offerings, the momentum of Office 365, the wide range

of support they provide, combined with their approach to empower partners all contribute to very strong

partner relationships. When partners were asked which vendor they would partner with if they could only

select one vendor, 82% of all partners selected Microsoft. Similarly, 93% of Microsoft Gold partners chose

Microsoft as their preferred partner.

Partners can strengthen their relationship with Microsoft and increase their profitability by:

Investing in upgrading to a Gold level partnership. Gold partners were consistently the most

satisfied with profitability and their overall relationship with Microsoft (97% overall satisfaction).

Although there are costs associated with training and certifications to attain Gold level status, Gold

partners feel the investment is worthwhile due to the greater opportunities and support Gold

partners receive. This deeper relationship with Microsoft allows Gold partners to accrue stronger



margins (33% higher than margins from next highest vendor) to drive greater profitability.

Additionally, Gold partners are more likely to feel that working with Microsoft allows them to

enable a better customer experience for their customers (88% of Gold partners). As a result,

customers are more likely to be satisfied with partners and establish a deeper level of trust.

Participating in co-marketing and lead generation programs with Microsoft. Partners were more

likely to be satisfied with the marketing support they received from Microsoft than from other

vendors. Partners felt these programs allowed them to accelerate their sales and marketing

motions.

Leading with Office 365. When customers are ready to move to the cloud, they often are most

comfortable starting with Office 365 as the on-premises version of Office is a product they are

already familiar with. Office 365 is a gateway product that allows the partner to cross-sell and up-

sell additional products and services.

Expanding the scope of value added services offered. The breadth of Microsoft offerings provides

ample opportunity for partners to bundle in value added services and increase the profitability of

the deals they win with customers.



About This Study

AMI conducted a two phased study to help Microsoft better understand the key elements of partner

relationships. 15 qualitative, in-depth interviews (IDIs) were conducted with senior executives at

Microsoft channel partners to explore perceptions of Microsoft, its cloud offerings, profitability potential,

and its partner management vs. competitors. These interviews were followed up with a quantitative,

blind survey of 614 current Microsoft partners in the US, Canada, UK, Australia, Brazil, and India. The

survey respondents consisted of a mix of those who partner only with Microsoft, with Microsoft and

Amazon Web Services, with Microsoft and Google, and with Microsoft and Salesforce. Many respondents

worked with three or even all four of the vendors. Below is a breakout of the sample by vendor

partnerships (currently partnered with or previously partnered with):

Additionally, AMI ensured a good mix of respondents by type of end-user customer served. 72% of

respondents primarily serve small business customers (with less than 250 employees), 22% primarily serve

mid-sized customers (with 250-999 employees), and 6% primarily serve large businesses (with over 1,000

employees).

Survey respondents included individuals who are directly involved in working with platform providers and

represent companies who generate a minimum of 30% of their revenue from selling cloud solutions.

Additionally, they must have been a Microsoft partner for a minimum of 9 months. IDI respondents were

aware that Microsoft was the research sponsor; however, the quantitative portion of the study was

conducted as a blind survey.

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